Wall Street's most hated pharma company just lost a lifeline

A federal court in Delaware on Tuesday handed Mallinckrodt Pharmaceuticals a stinging defeat in a patent case on its drug Inomax, a hypoxic respiratory failure drug that made up 15% of the company's revenue.

The court invalidated five of its patents and ruled another six as "non-infringed."* As Reuters reported, the ruling was on a lawsuit that Mallinckrodt had filed against Praxair Inc. Mallinckrodt plans to appeal the ruling.

"We are aware of and disappointed in Judge Sleet's ruling today in Mallinckrodt's case against Praxair for patent infringement, particularly in light of the fact that INOMAX is used for the treatment of hypoxic respiratory failure in fragile neonates," Mallinckrodt said in a statement. "However, we have a solid basis for appeal and will appeal this decision."

A huge source of Mallinckrodt's revenue is being threatened by a generic rival, but — more importantly — the company could be forced to rely on two business lines that have drawn intense scrutiny from both Washington and Wall Street.

Last week Missouri Attorney General Josh Hawley announced that he was seeking information from seven pharmaceutical companies about the marketing of their opioid products, including Mallinckrodt.

Hawley, along with Missouri Senator Claire McCaskill (D), is investigating whether or not opioid manufacturers marketed their drugs for off-label uses. That is to say, they want to know if the companies encouraged doctors to prescribe the drugs to treat diseases outside their intended use. Mallinckrodt manufactures oxycodone.

Then there's Acthar, a controversial almost-$40,000 infantile spasm drug Mallinckrodt bought from Questcor back in 2014. It's Mallinckrodt's blockbuster drug, but it hasn't been tested since the 1950s, and investors across the country have been clamoring to see its efficacy tested.

The company has said that Acthar is only used for a very small number of extremely sick patients, but that hasn't stopped people from asking questions.

There are a few reasons for that, and they've had short sellers attacking Mallinckrodt for some time:

Investors are taking this to mean that Mallinckrodt is going to have to rely on shakier parts of its business. Reuters reported that 18.6 percent of the shares outstanding were held as short interest as of mid-August, and Inomax only has exclusivity until October 2018.

*This story has been updated to clarify that five patents were invalidated while six others were ruled "non infringed."